Congress seems to be on a route to fundamentally change the way federal tax will be calculated. Let’s be clear, even though most experts expect a major tax law to be enacted this year, there’s no guarantee that this will happen, so let’s keep our fingers crossed until the President signs the tax bill into law.
Below are some of the key points:
Lower tax rates are almost here. Effectively 1/1/2018, both the tax bill that passed the House of Representatives and the one before the Senate would reduce tax rates for individuals and corporations. So, a good game plan for taxpayers to take advantage of lower tax rates next year would be to defer income into next year (2018). Since there are few taxpayers that income deferral might be the best options, please contact us for 2018 tax planning and projections
Consider Converting Regular IRA to Roth IRA next Year: If you are thinking of converting a regular IRA to a Roth IRA, you may want to postpone your move until next year, so it can be taxed at lower rates.
Disappearing Deductions and Larger Standard Deductions are here to stay. Beginning next year, both the House-passed tax reform bill and the version before the Senate would repeal or reduce many popular tax deductions in exchange for a larger standard deduction.
Consider Large Charitable Donations in 2017: Both House passed bill and Senate bill will not repeal the charitable donations. For charitable donations to yield a good tax benefit in 2018, taxpayers must give very large donations to take advantage of a higher itemized deduction over standard deduction that will be increased in 2018.
Alternative Minimum Tax (AMT) might be gone for life. But both the Senate and House versions of the tax reform bill call for the AMT to be repealed next year. Consider taking advantage of the cash flow that will result from eliminating AMT.
Be aware that Medical Deductions are in Limbo. The House-passed bill, but not the one before the Senate, would eliminate the itemized deduction for medical expenses. If possible try as much as you can to take your medical deductions in 2017 or prepay medical expenses if you can.
Good news for Small Business: The House-passed bill proposed a 25% tax rate for small business owners who report their profits as income on their personal tax return. This is higher than the 20% rate proposed for Corporations. A small business that operates on a cash basis, are generally taxed on income received, so the income earned by such small businesses isn’t taxed until clients or customers pay. So. if a small business should hold off on billings until next year or until so late in the year that no payment can be received in 2017, this will help the small business in deferring income until next year (2018).